December 1st, 2009 9:15 AM by Lehel S.
Tuesday's bond market has opened in negative territory despite weaker than expected economic results from a very important report. Stock market gains are likely the cause of this morning's bond weakness. Stocks are rallying with the Dow up 133 points and the Nasdaq up 30 points. The bond market is currently down 11/32, which should push this morning's mortgage rates higher by approximately .125 - .250 of a discount point.
Today's big news came from the Institute for Supply Management (ISM) who posted their manufacturing index for November. They announced a reading of 53.6 that fell short of the 54.9 that was expected, meaning manufacturer sentiment was weaker than thought. This is supposed to be good news for bonds and mortgage rates because a weakening manufacturing sector makes a broader economic recovery less likely and eases inflation concerns that hurt bond prices. Unfortunately for mortgage shoppers, today's data is not influencing trading as much as it usually does.
The Fed Beige Book will be released at 2:00 PM ET tomorrow and is the day's only relevant data. This report, which is simply named after the color of its cover, details economic conditions by region. It is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises.
The next piece of data that we need to be concerned with comes Thursday morning with the release of the revised 3rd Quarter Productivity report. This index is expected to show a downward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn't necessarily bad for the bond market. It is the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate of 8.6%, down from the previous estimate of 9.5%.
I still believe Friday is the day to watch out for. It brings us the almighty monthly Employment report. Its results can erase the entire week's gains or losses in the hour of trading following its release. It appears that my concern about bonds meeting resistance at current levels was accurate. This will probably remain the case until we get a significant catalyst to break through these levels. Friday's report certainly has the potential to do this, assuming that the data is favorable to bonds. Until then, it is prudent to remain cautious towards rates.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.